Breaking the Brokers; as Housing Prices Keep Heading through the Roof, More Sellers Are Balking at Paying Full Commissions. Some Agents Are Even Joining in This Homegrown Rebellion
McGinn, Daniel, Newsweek
Byline: Daniel McGinn
When Larry and Jean Weed of Sparks, Nev., decided to sell their home, they invited some real-estate agents by for a visit. Most offered to sell the house the old-fashioned way, by listing it in the local brokers' database and charging a 6 percent commission (worth $16,800 on the Weeds' $280,000 home). Then the couple met an agent from Assist-2-Sell, a "flat-fee" brokerage that charges just $2,995 to sell a home. In their area, as in much of the country, "it's a sellers' market--houses are going like hot cakes," Jean says. So they decided to try the cheaper approach. Eight days after the for sale sign went up, they had a buyer. By using Assist-2-Sell, they walked out of their closing with an extra $13,795. As she packed boxes last week, Jean wondered if regular agents might become relics. "I don't foresee ever using one again," she says.
It's been a generation since Charles Schwab bullied his way into the stock-brokerage business by cutting commissions. It's been nearly a decade since Web sites like Edmunds, Priceline and Travelocity helped drive down middlemen's profits on minivans and Caribbean cruises. Now a growing number of firms are moving to serve home sellers who balk at paying a big commission. And even among home sellers who use a traditional agent, many are growing more price-conscious and haggling with brokers to reduce their rates. The average real-estate commission was 5.12 percent last year, down a full percentage point over the past decade, says Steve Murray of Real Trends.
Folks like the Weeds remain rare: the vast majority of home sellers still use full-commission agents. But alternatives are emerging--and many observers are surprised they didn't gain in popularity even sooner. The industry spent much of the 1990s worrying that brokers would be dot-commed into oblivion. "In 1999, if Bill Gates had walked into a [real-estate agents'] convention, he'd have been dismembered," says John Tuccillo, an industry consultant. But predictions that Web sites would replace brokers have proved dead wrong. Today the industry is facing pressure from a very different set of problems: rising home prices and a glut of agents. The economics are easy to understand. As home values escalate, home sellers are balking at the usual 6 or 7 percent commission--a fee of more than $10,000 on the median-priced U.S. home. "Why pay so much money if my house is going to sell in a week?" sellers ask, especially as more agents are scrambling for listings. The biggest squeeze is occurring in markets where home prices top $350,000. Along with competition from newbie agents, the pressure has limited brokers' earnings: half earned less than $52,500 in 2002.
Another threat comes as a small but growing number of homeowners try new ways to sell a home. The two largest "flat-fee" brokerages, Help-U-Sell and Assist-2-Sell, are well over a decade old, but in the past year their networks of franchises have exploded; together they now have nearly 900 offices nationwide. And even some established brokerages are experimenting with "a la carte" pricing, where instead of commissions, sellers pay an agent separate, set fees to price a home, hold an open house or write the contract. Says Murray: "There are a lot of new entrants into this business, and they're not all playing by the existing rules. …